SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,1999 Commission file number: 1-3462
CARLYLE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1574754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Palmer Terrace, Carlstadt, New Jersey 07072
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: (201)935-6220
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, par value $0.01 per share
Securities registered pursuant to Section 12(g) of the Act: Not applicable
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [ ] No [X]
As of March 10, 2000, 13,934,858 shares of Registrant's Common Stock
were outstanding, and the aggregate market value of the voting stock held by
non-affiliates of Registrant was approximately $6,373,237. This figure was
calculated on the basis of the closing price of a share of Common Stock of
Registrant on the Electronic Bulletin Board on March 10, 2000. As used herein,
non-affiliates means all stockholders of Registrant other than executive
officers, directors and 5% shareholders.
The information required by Part III of Form 10-K is incorporated by
reference to the Registrant's definitive proxy statement to be distributed to
stockholders in connection with its annual meeting scheduled for May 23, 2000.
<PAGE>
THIS ANNUAL REPORT ON FORM 10-K (THE "ANNUAL REPORT") CONTAINS STATEMENTS WHICH
CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). THOSE
STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS ANNUAL REPORT AND INCLUDE
STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY,
ITS DIRECTORS OR ITS OFFICERS WITH RESPECT TO, AMONG OTHER THINGS: (I) THE
COMPANY'S FINANCING PLANS; (II) TRENDS AFFECTING THE COMPANY'S FINANCIAL
CONDITION OR RESULTS OF OPERATIONS; (III) THE COMPANY'S GROWTH STRATEGY AND
OPERATING STRATEGY;(IV) CUSTOMER CONCENTRATION AND THE INCREASING CONSOLIDATION
OF THE COMPANY'S CUSTOMER BASE (V) THE DECLARATION AND PAYMENT OF DIVIDENDS.
SHAREHOLDERS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISK AND UNCERTAINTIES, AND THAT
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS.
PART I
ITEM 1. BUSINESS OF THE COMPANY
Carlyle Industries, Inc. ("Carlyle") and its subsidiaries
(collectively, the "Company") manufacture, package and distribute buttons, gifts
and craft products.
The Company's principal executive offices are located in 7,307 square
feet of leased premises at One Palmer Terrace, Carlstadt, New Jersey and its
telephone number is 201-935-6220.
The Company's business is conducted principally through three
subsidiaries: the Blumenthal Lansing Company, Westwater Industries, Inc. and
Button Fashion B.V. Westwater Industries, Inc. ("Westwater"), a Delaware
corporation, was formed in June 1998 to acquire the assets and business of
Westwater Enterprises, LP. Westwater Industries, Inc. is a wholly owned
subsidiary of the Company. Button Fashion B.V. ("Button Fashion"), a Netherlands
limited company was formed in December 1999 to acquire certain of the assets and
business of Button Fashion Holland B.V. Button Fashion manufactures and
distributes buttons and is a wholly owned subsidiary of Blumenthal Lansing
Company. In December of 1998, the Company`s wholly owned subsidiary, Blumenthal
Lansing Company, acquired certain of the assets and business of Streamline
Industries, Inc. ("Streamline"). Streamline is now a carded button product line
of Blumenthal Lansing Company.
PRODUCTS. The Company packages and distributes an extensive variety of
buttons, embellishments, gift and craft products to mass merchandisers,
specialty chains and independent retailers and wholesalers throughout the United
States. Products are sold under the La Mode (R), Le Chic (R), Streamline (R)
Westwater Enterprises (R) and Button Fashion (R) registered trademarks and the
Le Bouton, La Petite, Classic, Boutique Elegant and Mill Mountain brand names.
The Company also produces and distributes a private-label button line for one of
the nation's best-known retailers. The Company markets complimentary product
lines, including appliques, craft kits and fashion and jewelry accessories to
its home sewing and craft customers. The Company also manufactures casein and
polyester buttons.
MARKETS. The Company's button products are sold primarily for use in
the home sewing market where buttons are used for garment construction,
replacement and the upgrading and/or restyling of ready-to-wear clothing. More
modest button usage is found in craft projects, home decorating and garment
manufacturing. The domestic market is concentrated and is served by national and
regional fabric specialtychains, mass merchandisers, independent fabric stores,
notions wholesalers and craft stores and chains.
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<PAGE>
DURING THE YEARS ENDED DECEMBER 31, 1999 AND 1998 SALES TO FOUR MAJOR CUSTOMERS
(WAL-MART, JO-ANN STORES, HANCOCK FABRICS AND MICHAELS) ACCOUNTED FOR 78% AND
77%, RESPECTIVELY OF THE COMPANY'S AGGREGATE NET SALES VOLUME. A REDUCTION IN
SALES AMONG ANY OF THESE CUSTOMERS COULD ADVERSELY IMPACT THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY. THROUGH ITS BUTTON FASHION
SUBSIDIARY, WHICH WAS ESTABLISHED IN DECEMBER 1999, THE COMPANY HAS BEGUN TO
GEOGRAPHICALLY EXPAND THE BUTTON BUSINESS BEYOND ITS TRADITIONAL DOMESTIC
BOUNDARIES AND INTO THE MAJOR EUROPEAN COUNTRIES.
Through its Westwater subsidiary, the Company has a developing gift
market program which is being directed toward independent outlets and chains
where gifts are sold.
PRODUCT SOURCING, DISTRIBUTION AND SALES. The button lines are sourced
from more than 75 button manufacturers around the world, with most buttons
coming from the traditional markets of Europe and Asia. Button manufacturers
specialize in different materials (plastic, wood, glass, leather, metal, jewel,
pearl, etc.) and have varying approaches to fashion, coloration, finishing and
other factors. Most craft and gift products are developed within the Company and
produced in Asia.
All imported and domestically purchased buttons for sale in the U.S.
market are shipped to the Lansing, Iowa facility for carding and distribution to
customers. As thousands of button styles are received in bulk, computerized card
printing systems enable Blumenthal Lansing to economically imprint millions of
button cards with such necessary data as style number, price, number of buttons,
bar code, country of origin and care instructions. The Company also
blister-packages and shrink-wraps some products. Domestic shipments are made
primarily to individual stores with a smaller percentage to warehouse locations.
Craft and gift products are also distributed from the Lansing, Iowa facility.
The European business is primarily serviced by distributors from a manufacturing
and distribution facility in Holland.
The Company's accounts include fabric and craft specialty chains, mass
merchandisers carrying buttons and crafts, distributors and many independent
stores. Mass merchandisers and specialty chain customers are characterized by
the need for sophisticated electronic support, rapid turn-around of merchandise
and direct-to-store service to customers with hundreds to thousands of locations
nationwide. The Company enjoys long-standing ties to all of its key accounts and
the average relationship with its ten largest customers extends over 20 years.
Due to the large account nature of its customer base, most customer contact is
coordinated by management; additional sales coverage is provided by regional
sales managers. Many smaller retailers are serviced by independent
representatives and representative organizations.
COMPETITIVE FACTORS. The retail button market in the United States is
served by several competitors. The Company competes primarily with full-line
button packagers and distributors in the general button market and several
smaller competitors in the promotional button market. Management believes that
the principal bases for competition are product innovation, range of selection,
brand names, price, display techniques and speed of distribution. The craft and
gift markets are served by many and varied competitors with innovation and
competitive pricing being of major importance.
Management believes that retail button distribution depends on trends
in the mature home-sewing market. The retail customer base for buttons has
changed substantially over the past two decades as department stores and small
independent fabric stores have been replaced by mass merchandisers and specialty
retail chains which have continued to consolidate recently through mergers and
store closings. In response to this trend, the Company has broadened its lines
to include embellishments, novelty buttons, and products used in the craft and
gift industries which are not viewed by management as mature markets. In
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<PAGE>
addition, the Company has sought to expand its markets beyond the traditional
U.S. retail outlets by expansion into the major European countries through the
Button Fashion operation.
The bulk of the Company 's revenues are derived in the United States.
In 1999, less than 1% of revenues related to export sales. Inventory levels
remain relatively constant throughout the year. The Company believes its
policies related to merchandise return and payment terms are in accordance with
industry standards.
EMPLOYEES; LABOR RELATIONS. The Company has approximately 173
employees, none of whom are covered by a collective bargaining agreement.
Management believes relations with employees are satisfactory.
CURRENT BACKLOG. The Company fills at least 95% of its orders within 48
hours and as a result had no backlog of any significance at either December 31,
1999 or 1998.
DISCONTINUED OPERATIONS
In March 1997 the Company completed the sale of its Thread division
pursuant to an agreement dated as of December 12, 1996 (the "Thread Division
Agreement"). Proceeds received on the sale adjusted for closing costs and
changes in working capital of the division subsequent to September 30, 1996
totaled $54.9 million cash (of which $3.0 million was placed in escrow) plus the
assumption of approximately $6.8 million of liabilities. A portion of the
proceeds was used to pay down the Company's outstanding bank debt. Consequently,
the results of operations of the Thread division for 1997 and all prior periods
have been classified as discontinued operations. (See ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS).
The business of the Company's Thread division which was headquartered
in Charlotte, North Carolina, was conducted through various subsidiaries,
including a wholly-owned subsidiary, The Carlyle Thread Group, LLC, a
Connecticut limited liability company ("CTG"), which was formed through the
transfer of the net assets of the Belding Corticelli Thread Company, a division
of the Company ("BCTC"), and the Carlyle Manufacturing Company, Inc., a
wholly-owned subsidiary of the Company ("CM"). The Thread division also included
the business of Carlyle Threads, Inc. ("CTS") which was acquired in June 1994
and Carlyle International, Inc. and Culver Textile Corp. (together, "Culver")
which was acquired in August 1995. CTS and Culver were merged in August 1996
with CTS continuing as the surviving corporation. The Thread division
manufactured and marketed industrial thread and special engineered yarn used in
non-sewing products. CTS's and Culver's main products were specialty threads
marketed primarily to the wholesale bedding and embroidery market.
On October 22, 1999, the Company reached final agreement with Hicking
Pentecost PLC regarding all outstanding issues related to the sale of the Thread
division in 1997. As a result, $2.4 million of escrow proceeds were received
from the escrow agent. This receipt has been reported as income from
discontinued operations totaling $1.5 million after tax.
Page 4 of 41
<PAGE>
ITEM 2. PROPERTIES
See ITEM 1.
The Company owns a 104,000 square foot packaging and distribution
facility located in Lansing, Iowa and a 35,000 square foot manufacturing and
distribution facility located in Veendam, the Netherlands. Corporate
headquarters and divisional management, sales and marketing, product
development, fashion and purchasing are headquartered in a leased 7,307 square
foot office facility in Carlstadt, New Jersey. Management believes that the
Company's facilities are in good condition and adequate for the Company's
present and reasonably foreseeable future needs.
The Company owns a former dye facility located in Emporia, Virginia,
which is leased to the purchaser of the Company's former Home Furnishings
division under a triple net fifty-year lease with a nominal base rent. In
addition, the Company owns two facilities no longer used in operations: a
100,000 square foot former production facility at Watertown, Connecticut of
which approximately 48,000 square feet are leased to unrelated third parties and
a former production facility at North Grosvenordale, Connecticut. (See Item 3
Legal Proceedings - Environmental Matters).
ITEM 3. LEGAL PROCEEDINGS
General. The Company is not currently a party to any significant
litigation except as indicated below.
Environmental Matters. The Company is subject to a number of federal,
state and local environmental laws and regulations, including those concerning
the treatment, storage and disposal of waste, the discharge of effluents into
waterways, the emissions of substances into the air and various health and
safety matters. In addition, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and comparable
state statutes generally impose joint and several liability on present and
former owners and operators, transporters and generators for remediation of
contaminated properties regardless of fault. These parties are typically
identified as "potentially responsible parties" or PRP.
Several years ago a property owned by the Carlyle Manufacturing
Company, Inc. ("CM") located at 30 Echo Lake Road in Watertown, Connecticut was
being investigated by the United States Environmental Protection Agency ("EPA")
for possible inclusion on the National Priorities List promulgated pursuant to
CERCLA but no such listing has occurred. A Site Inspection conducted at this
location detected certain on-site soil and groundwater contamination, as well as
contamination of nearby water. This site is listed on the Connecticut State
Hazardous Waste Disposal Site list, but remediation activity has not been
required by the Connecticut Department of Environmental Protection ("CTDEP").
CM owns an inactive facility located in North Grosvenordale,
Connecticut at which soil contamination has been found. The Company reported
this contamination to the CTDEP in 1989 and is presently working with the CTDEP
to define remedial options for the site, which it expects will focus primarily
on removal and possible stabilization of contaminated soil on site. The Company
estimates the cost of soil remediation at this site to be approximately $100,000
based upon information on the costs incurred by others in remediating similar
contamination at other locations. As the actual cost of remediation at this site
will depend on the areal extent of soil contamination and the remediation
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options approved for this site in the future by the CTDEP, no assurances can be
given that the actual cost will not be higher than the Company's current
estimate.
In or about June 1992 the Company received notices from the EPA that
the Company, Belding Corticelli Thread Co. ("BCTC") and CM had been identified,
along with 1,300 other parties, as PRPs in connection with the alleged release
of hazardous substances from the Solvents Recovery Service of New England
Superfund Site in Southington, Connecticut (the "SRS site").
The Company settled its alleged liability in connection with the SRS
sites by paying one thousand six hundred twenty six dollars ($1,626) in
connection with a settlement offered to de minimis parties at the SRS site in
1994, BCTC and CM, along with other PRPs, committed to perform the Remedial
Investigation and Feasibility Study ("RIFS") and two Non-Time Critical Removal
Actions ("NTCRA") at the SRS site. The RIFS, and the first NTCRA (except for
certain maintenance activities) have been completed. BCTC and CM have been
allocated approximately .03% and 1.19%, respectively, of costs incurred to date,
based on their alleged volume of waste shipped to the SRS site. At the earliest,
the EPA will issue its Record of Decision ("ROD") concerning the final remedy at
the SRS site in May, 2000. Most likely, the EPA will set September 30, 2000 as
its target date for the ROD. The Company is unable, at this time, to estimate
the ultimate cost of the remedy for the SRS site.
By letter dated January 21, 1994, the EPA gave notice to CM that it had
been identified as a PRP along with about 335 other parties in connection with
the alleged release of hazardous waste at the Old Southington Landfill Superfund
site located in Southington, Connecticut (the "OSL site"). The EPA's claim is
predicated on the allegation that certain waste sent to the SRS site prior to
October 1967 was commingled and transshipped to the OSL site.
On September 3, 1996, CM entered into an agreement (with the EPA and
other members of the SRS PRP Group) to settle its liability in connection with
the First Operable Unit of work ("OU#1") at the OSL site for two thousand
dollars ($2,000). The OU#1 Consent Decree was entered in June, 1998 by the U.S.
District Court for the District of Connecticut.
The De Minimis Settlement Consent Decree whereby CM settled its future
OSL liability for $3,343 (subject to certain standard "reopeners") was entered
in June 1999 by the U.S. District Court for the District of Connecticut.
By letter dated October 30, 1987, the Department of Environmental
Protection of the State of New Jersey ("DEP") notified the Company that CM,
together with 122 other parties, had been identified as a party responsible for
cleanup costs and damage claims paid in connection with the Chemical Control
Corporation hazardous waste site located in Elizabeth, New Jersey. A settlement
between CM and other members of the Chemical Control Responsible Party Group, on
the one hand, and the DEP and the New Jersey Spill Compensation Fund, on the
other hand, was finalized in December 1998. The amount paid by CM was
$142,218.93.
By third-party summons and complaint dated November 27, 1991, CM was
named as a third-party defendant in an action pending in the United States
District Court for the District of Rhode Island entitled United States v. Davis.
In addition to CM, approximately 60 other companies were joined as third-party
defendants. Amended third-party complaints named additional third-party
defendants. The third-party complaint against CM alleged claims for contribution
under CERCLA, common law indemnification and state law contribution. The
third-party complaint alleged that CM (and the majority of the other third-party
Page 6 of 41
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defendants) shipped waste to the CCC site, which waste was commingled and then
shipped to the Davis Liquid Waste site located in Smithfield, Rhode Island.
CM has entered into an agreement to settle liability in connection with
the above claims for payment of the sum of $200,000. The Consent Decree was
approved in 1998 by the Federal District Court. At least one non-settling party
appealed from the District Court's approval of the Consent Decree.
The estimates provided above do not include costs that the Company or
its subsidiaries may incur for consultants' or attorneys' fees or for
administrative expenses in connection with their participation as part of the
PRP group at the SRS and OSL sites. The reserve the Company has established for
environmental liabilities, in the amount of $1.7 million, represents the
Company's best current estimate of the costs of addressing all identified
environmental problems, including the obligations of the Company and its
subsidiaries relating to the Remedial Investigation and two Non-Time Critical
Removal Actions at the Solvents Recovery Superfund site, based on the Company's
review of currently available evidence, and takes into consideration the
Company's prior experience in remediation and that of other companies, as well
as public information released by EPA and by the PRP groups in which the Company
or its subsidiaries are participating. Although the reserve currently appears to
be sufficient to cover these environmental liabilities, there are uncertainties
associated with environmental liabilities, and no assurances can be given that
the Company's estimate of any environmental liability will not increase or
decrease in the future. The uncertainties relate to the difficulty of estimating
the ultimate cost of any remediation that may be undertaken, including any
operating costs associated with remedial measures, the duration of any
remediation required, the amount of consultants' or attorneys' fees that may be
incurred, the administrative costs of participating in the PRP groups, and any
additional regulatory requirements that may be imposed by the federal or state
environmental agencies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(A) MARKET INFORMATION. On September 2, 1998, the New York Stock
Exchange notified the Company that it would be delisted for failing to meet
listing criteria related to aggregate market value, net income and net tangible
assets. On September 4, 1998, the Company commenced trading on the
over-the-counter bulletin board ("OTCBB") market under the symbol CRLH. The
Company's Common Stock had been trading on the NYSE, under the symbol CRL since
March 27, 1997 and as BHY from February 15, 1995 to March 26, 1997. The
following table sets forth certain information as to the high and low sales
prices per share of the Company's Common Stock as quoted on the OTCBB and NYSE
for each of the last two years.
CALENDAR YEAR COMMON STOCK
------------- -----------------------
1999 LOW HIGH
---- ------- --------
First Quarter $ .7188 $ 1.25
Second Quarter $ .50 $ 1.75
Third Quarter $ .6875 $ 1.25
Fourth Quarter $ .4375 $ .6875
1998
----
First Quarter $1.1875 $ 1.5625
Second Quarter $1.1875 $ 1.625
Third Quarter $ .4375 $ 1.3125
Fourth Quarter $ 1.5625
$ .46875
(B) HOLDERS. There were 234 record holders of the Company's Common
Stock as of February 29, 2000. The Company believes that, as of such date, there
were in excess of 1,478 beneficial holders, including those stockholders whose
shares are held of record by depositary companies.
(C) DIVIDENDS. No cash dividends on the Common Stock have been paid to
date and the Company has no intention of paying dividends in the foreseeable
future. In addition, dividends on the Common Stock are subject to the prior
right of holders of the Preferred Stock to receive cumulative dividends at the
rate of $.06 per annum per share (or, if the Company defaults on its obligation
to redeem shares of Preferred Stock on the mandatory redemption dates, at the
rate of 6% per annum on the principal amount of the Preferred Stock then
outstanding plus accrued and unpaid dividends thereon). In addition, the holders
of Preferred Stock are entitled, upon a dissolution, liquidation or winding up
of the Company, to an unpaid liquidation preference of $1 per share plus all
accrued and unpaid dividends. Unpaid preferred dividends accrue dividends at a
rate of 6% per annum.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data relating to the
Company and its subsidiaries have been taken or derived from the financial
statements and other records of the Company. Such selected consolidated
financial data are qualified in their entirety by, and should be read in
conjunction with, the consolidated financial statements of the Company.
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales $ 28,889 $ 23,801 $ 19,641 $ 22,162 $ 20,352
======== ======== ======== ======== ========
Income from continuing operations 2,538 3,160 3,727 2,758 932
Income (loss) from continuing
operations applicable to common stock 1,927 2,021 2,282 1,393 (350)
Income (loss) from discontinued
operations, net of income taxes -- -- (316) 2,080 (22,502)
Income (loss) on disposal of discontinued
operations, net of income taxes 1,544 -- (9,801) -- (17,983)
Extraordinary loss on debt prepayment,
net of tax benefit -- -- -- (266) --
Gain on preferred stock redemption 3,011 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) applicable to common
stock $ 6,482 $ 2,021 $ (7,835) $ 3,207 $(40,835)
======== ======== ======== ======== ========
Weighted average common shares outstanding 9,896 7,383 7,386 7,395 7,414
======== ======== ======== ======== ========
PER COMMON SHARE DATA (BASIC AND DILUTED):
Continuing operations $ .20 $ .27 $ .31 $ .19 $ (.05)
Discontinued operations .16 -- (1.37) .28 (5.46)
Extraordinary item -- -- -- (.04) --
Gain on preferred stock redemption .30 -- -- -- --
-------- -------- -------- -------- --------
Total $ .66 $ .27 $ (1.06) $ .43 $ (5.51)
Cash dividend per common share None None None None None
======== ======== ======== ======== ========
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------
BALANCE SHEET DATA:
Working capital $ 8,564 $ 9,188 $ 10,646 $ (1,512) $ (323)
Total assets $ 18,322 $ 17,824 $ 25,062 $ 67,169 $ 75,727
Long-term debt, capital
lease obligations and
redeemable preferred stock $ 11,755 $ 21,108 $ 25,067 $ 56,647 $ 66,845
Common stockholders' equity $ (4,251) $(17,285) $(19,306) $(11,471) $(14,677)
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Sales during the year ended December 31, 1999 were $ 28.9 million as
compared to $23.8 million during the year ended December 31, 1998 for an
increase of $5.1 million or 21.3%. Incremental sales contributed by acquired
businesses totaled $ 6.6 million. The Company estimates that approximately $ .5
million of this amount represented the filling of backlog orders related to the
acquired Streamline product line. Somewhat offsetting this increase was a
reduction in sales of previously existing product lines. The negative sales
comparison in previously existing product lines was the result of several
factors. First, fewer new programs shipped in 1999 as compared to 1998. New
programs provide both initial shipment revenues and reorder revenues during the
year of initial shipment. In addition, a general softness in sales of previously
existing product lines was experienced, particularly during the second half of
1999. This softness was the result of, among other things, both the current
fashion trend and the continued consolidation of the Company's customer base.
These factors are expected to continue to negatively impact sales through the
balance of the year 2000.
Gross margin during the year ended December 31, 1999 totaled $13.0
million or 45.0% as compared to $10.9 million or 46.0% during the comparable
period in 1998. The increase in gross margin dollars in 1999 over 1998 is
primarily the result of gross margin from acquired businesses which totaled $
3.2 million in 1999. The decrease in gross margin percent was the result of the
acquired businesses operating at a lower margin during 1999.
Selling, general and administrative expense during the year ended
December 31, 1999 increased $2.6 million to $8.2 million as compared to $ 5.6
million during the year ended December 31, 1998. Selling, general and
administrative expense as a percent of net sales increased to 28.5% from 23.5%
primarily as a result of expenses incurred by acquired businesses which totaled
$ 1.4 million. In addition, approximately $ .5 million was incurred in
connection with new product lines which are under development, $ 186 thousand of
consolidation expense was recorded in connection with the Streamline acquisition
and $ 158 thousand in various legal and consulting expenses were incurred in
connection with the preferred stock recapitalization as described in Note 13 and
the Thread escrow issue, as discussed in Note 4.
Net interest expense during the year ended December 31, 1999 totaled
$753 thousand as compared to net interest expense of $309 thousand during the
year ended December 31, 1998. The increase in interest expense in 1999 as
compared to 1998 was the result of bank debt outstanding beginning June 23, 1998
in connection with the Preferred Stock payment and subsequent acquisitions.
The provision for income taxes on income from continuing operations
during 1999 totaled $ 1.5 million as compared to $ 1.9 million during the
comparable period in 1998. The combined effective tax rate was 36.8% in 1999 as
compared to 37.1% in 1998. Income on disposal of discontinued operations of $1.5
million was net of a provision for income taxes totaling $869 thousand. The gain
on preferred stock redemption of $3.0 million in 1999 was not a taxable item.
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Preferred dividends accrued during the year ended December 31, 1999
totaled $ 611 thousand as compared to $ 1.1 million during the year ended
December 31, 1998. The reduction from 1998 was due to the partial redemption of
preferred stock which occurred during the third quarter of 1999.
Weighted average common shares outstanding increased to 9.9 million in
1999 as compared to 7.4 million in 1998 as the result of common shares issued in
connection with the preferred stock recapitalization.
1998 COMPARED TO 1997
Sales during the year ended December 31, 1998 were $23.8 million as
compared to $19.6 million during the comparable period in 1997 for an increase
of $4.2 million. Westwater contributed $4.7 million of incremental sales, all
occurring during the second half of 1998. Somewhat offsetting the favorable
comparison due to Westwater was the impact on sales from customer consolidation
and related store closings occurring principally during the second half of 1997.
Gross margin during the year ended December 31, 1998 totaled $10.9
million as compared to $10.1 million during the comparable period in 1997. The
increase in gross margin dollars in 1998 as compared to 1997 was primarily the
result of Westwater which contributed $1.6 million of gross profit during the
period. During the year, the Company incurred approximately $398 thousand of
incremental cost of goods sold in connection with merchandise distributions
related to new store openings by customers. The gross margin percent for the
year ended December 31, 1998 was 46.0% as compared to 51.6% during 1997. The
decrease in gross margin percent was the result of lower margin in the Westwater
business and incremental costs associated with merchandise distributions related
to new store openings by customers.
Selling, general and administrative expense during the year ended
December 31, 1998 totaled $5.6 million as compared to $4.6 million during the
year ended December 31, 1997. Incremental Westwater selling, general and
administrative expense totaled $1.4 million. A reduction in selling, general and
administrative expense due to lower corporate administrative headcount and
expense offset some of the increase attributable to Westwater.
Net interest expense during the year ended December 31, 1998 totaled
$309 thousand as compared to net interest income of $304 thousand during the
year ended December 31, 1997. The increase in interest expense during 1998 as
compared to 1997 was the result of bank debt outstanding beginning June 23, 1998
in connection with the Preferred stock payment and also the subsequent
acquisitions of Westwater and Streamline. In 1997 interest expense incurred
prior to March 27, 1997 related to outstanding debt under former credit
facilities has been classified as discontinued operations
The provision for income taxes during 1998 totaled $1.9 million as
compared to $2.1 million during the comparable period in 1997. The effective tax
rate in 1998 was 37.1% as compared to 36.3% in 1997.
Preferred dividends accrued during the year ended December 31, 1998
totaled $1.139 million as compared to $1.445 million during the year ended
December 31, 1997. The reduction from 1997 was due to the partial redemption of
preferred stock in June 1998.
Page 11 of 41
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's principal sources of liquidity
included cash and cash equivalents of $433 thousand and trade accounts
receivable of $4.3 million. In addition, the Company had $3.2 million available
under its revolving credit facility as of December 31, 1999. Cash provided by
operations during the year ended December 31, 1999 totaled $3.5 million.
The Company's revolving credit facility contains certain financial
covenants with which the failure to comply may lead to an event of default. If,
as the Company expects, factors which negatively impacted sales during the
second half of 1999 continue through the balance of the year 2000, with the
result that sales and income from operations are negatively effected, it may be
necessary to renegotiate the financial covenants in order to avoid an event of
default. Although there can be no assurance that it will be successful, the
Company believes that it will be able to complete satisfactory arrangements with
the provider of the credit facility so as to avoid any event of default.
During the fourth quarter, the Company reached final agreement with
Hicking Pentecost PLC on all outstanding issues related to the sale of the
Thread division in 1997. As a result, $2.4 million of escrow proceeds were
received from the escrow agent. This receipt has been reported as income from
discontinued operations totaling $1.5 million after tax. The net proceeds were
used to reduce the Company's outstanding debt under the revolving credit
facility.
On December 29, 1999, the Company's wholly owned subsidiary Button
Fashion B.V. ("Button Fashion") acquired the operating assets of Button Fashion
Holland B.V. for approximately $834 thousand in cash including transaction
costs. An additional $162 thousand may be payable over the next four years
contingent on the realizability of certain inventory assets acquired. Button
Fashion manufactures and distributes buttons for sale principally in the
European market.
On June 30, 1998, the assets and business of Westwater Enterprises LP
were acquired by Westwater Industries, Inc. ("Westwater"), a newly formed
wholly-owned subsidiary of the Company. Westwater is an importer and distributor
of craft and gift products for sale to retail and specialty chain stores. The
Company paid approximately $3.1 million in cash, assumed $.5 million in bank
debt. In addition, contingent payments of up to $2 million may become payable
upon the achievement of specified earnings levels or the event of an acquisition
of more than 50% voting control of the Company prior to December 31, 2000. The
contingent payment period expires on December 31, 2000. Based on current
earnings levels the Company does not anticipate making the contingent payment.
On July 30, 1999 the Company announced that its Board had adopted a
voluntary Plan of Recapitalization (the "Plan") to provide for the issuance of
shares of common stock in exchange for accrued and unpaid preferred stock
dividends and the exchange of additional shares of common stock for preferred
stock. Pursuant to the Plan the Board had authorized the issuance of 2,757,363
shares of common stock in exchange for $3.4 million accrued dividends through
August 13, 1999, on its Series B preferred stock. The dividend exchange offer
valued the common stock at $1.25 per share. The offer was made to holders of
record as of July 16, 1999. At that date there were twelve holders of preferred
stock holding a total of 10,687,456 preferred shares.
Page 12 of 41
<PAGE>
Pursuant to the Plan, the Company's Board also approved an offer to the
preferred stockholders to exchange their shares of preferred stock for shares of
the Company's common stock at the rate .620911 of a share of common stock for
each share of preferred stock.
In connection with this plan, the Company issued 2,744,372 shares of
common stock in payment of $3,430,467 of accumulated preferred dividends and
issued 3,807,704 shares of common stock in redemption of $6,132,449 of preferred
stock, all effective as of August 13, 1999. After the preferred dividend payment
and the preferred stock exchange there remains 4,555,007 shares of preferred
stock outstanding and 13,934,858 shares of common stock outstanding. The Company
recorded a gain on the preferred stock redemption in the amount of $3.0 million.
The Company intends to fulfill its remaining obligation to the holders
of the Preferred Stock as required by the Company's charter to the extent that
the Company has cash resources in excess of those required to operate its
business and to the extent of limitations imposed by the Company's credit
facility, which only permit principal payments out of "excess cash" flow as
defined. As a result, the Company's redemption payments on account of the
Preferred Stock in the future will depend on the Company's future cash flow, the
timing of the settlement of the liabilities recorded in the consolidated
financial statements of the Company and compliance with the Company's Credit
Facility. In addition, the Company's decision to make any such payments will
depend on the successful resolution of any issues which may arise with the
Pension Benefit Guaranty Corp. ("PBGC") relating to the Company's unfunded
liability, if any, to its defined benefit plan.
Dividends on the Series B Preferred Stock accrue at an annual rate of
6% and are payable quarterly on March 15, June 15, September 15, and December
15. Additional dividends accrue on all scheduled but unpaid dividends at a rate
of 6% per annum. Under the terms of the Company's credit facility, the net
proceeds of $1.5 million received from the settlement of the Thread escrow are
available for purposes of making preferred stock dividend payments. As a result,
the Company expect to remain current with respect to quarterly preferred
dividends which total approximately $273 thousand per year.
The amount of the dividends in arrears at December 31, 1999 was zero
and at December 31, 1998 was approximately $2.9 million or $.40 per common
share. In addition, the availability of resources to make dividend payments to
the holders of Preferred Stock in the future will depend on the Company's future
cash flow and the timing of the settlement of the liabilities recorded in the
financial statements of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate change market risk in
connection with its credit facility with a financial institution. The interest
rate with respect to this facility is fixed from time to time, at the Company's
option, based on either LIBOR or the bank's prime rate. Changes in this variable
interest rate will have a positive or negative effect on the Company's interest
expense.
In addition, in December 1999 the Company acquired a business in the
Netherlands. Therefore, the Company is exposed to currency fluctuation risk. As
the exchange rate of the U.S. Dollar versus the Euro fluctuates, this may have
an impact on the amount of time it will take the Company to recoup its
investment made in connection with this acquisition.
Page 13 of 41
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Public Accountants.....................................15
Consolidated Balance Sheets- December 31, 1999 and 1998......................16
Consolidated Statements of Operations -
Years Ended December 31, 1999, 1998 and 1997...............................18
Consolidated Statements of Cash Flows -
Years Ended December 31, 1999, 1998 and 1997 ..............................19
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997.......................20
Notes to Consolidated Financial Statements
for the Years Ended December 31, 1999, 1998 and 1997.......................21
Consolidated Financial Statements Schedule
Schedule II - Valuation, Qualifying Accounts and Reserves..................33
Page 14 of 41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Carlyle Industries, Inc.
We have audited the accompanying consolidated balance sheets of Carlyle
Industries, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations, cash flows
and stockholders' equity for each of the three years in the period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Carlyle
Industries, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The 1999, 1998 and 1997 schedule listed
in the index to financial statements and schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The 1999, 1998 and 1997 schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
March 8, 2000
Page 15 of 41
<PAGE>
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 433 $ 55
Accounts receivable trade (net of allowance
of $936 and $1,263, respectively) 4,301 4,701
Inventories, net 4,488 4,592
Current deferred tax asset 2,615 2,646
Other current assets 217 219
-------- --------
Total current assets $ 12,054 12,213
-------- --------
Property, Plant and Equipment, at cost:
Land 140 40
Building and improvements 2,013 1,868
Machinery and equipment 1,561 843
-------- --------
3,714 2,751
Less: Accumulated Depreciation and Amortization (1,116) (922)
-------- --------
Net property, plant and equipment 2,598 1,829
-------- --------
Goodwill (net of amortization of $925 and $759, respectively) 3,147 2,955
Other Assets 713 827
-------- --------
Total Assets $ 18,512 $ 17,824
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
Page 16 of 41
<PAGE>
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AND SHARE DATA)
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,235 $ 1,296
Current maturities of long-term debt 21 56
Federal income taxes payable 460 390
Other current liabilities 1,774 1,283
---------- ----------
3,490 3,025
---------- ----------
Long-term Debt 7,200 10,421
Other Liabilities 7,506 8,034
---------- ----------
Total Liabilities 18,196 21,480
---------- ----------
Redeemable Preferred Stock, par value $0.01 per share
11,187,451 shares authorized:
Shares issued and outstanding:
Series A - None -- --
Series B - 10,687,456 at December 31, 1998 10,687
4,555,007 at December 31, 1999 4,555
Accumulated dividends on preferred stock 12 2,942
---------- ----------
4,567 13,629
---------- ----------
Common Stock, par value $0.01 per share
20,000,000 shares authorized;
Shares issued and outstanding:
7,382,782 at December 31, 1998 74
13,934,858 at December 31, 1999 139
Paid in Capital 26,345 19,858
Retained Earnings (30,735) (37,217)
---------- ----------
Total Common Stockholders' Equity (4,251) (17,285)
---------- ----------
Total Liabilities and Stockholders' Equity $ 18,512 $ 17,824
========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
Page 17 of 41
<PAGE>
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 28,889 $ 23,801 $ 19,641
Cost of sales 15,887 12,852 9,497
-------- -------- --------
13,002 10,949 10,144
Selling, general & administrative expenses 8,234 5,613 4,600
-------- -------- --------
Income from continuing operations before
interest and income taxes 4,768 5,336 5,544
Interest income (expense) (753) (309) 304
-------- -------- --------
Income from continuing operations before income taxes 4,015 5,027 5,848
Provision for income taxes 1,477 1,867 2,121
-------- -------- --------
Income from continuing operations 2,538 3,160 3,727
Loss from discontinued operations, net of income tax provision -- -- (316)
Income (loss) on disposal of discontinued operations,
net of income tax 1,544 -- (9,801)
-------- -------- --------
Net income before preferred stock activity $ 4,082 $ 3,160 $ (6,390)
Less dividends on preferred stock (611) (1,139) (1,445)
Gain on preferred stock redemption 3,011 -- --
-------- -------- --------
Income (loss) applicable to common stock $ 6,482 $ 2,021 $ (7,835)
======== ======== ========
Basic earnings (loss) per common share:
Continuing operations $ .20 $ .27 $ .31
Gain on preferred stock redemption .30 -- --
Discontinued operations .16 -- (1.37)
-------- -------- --------
Total $ .66 $ .27 $ (1.06)
======== ======== ========
Diluted earnings (loss) per common share:
Continuing operations $ .20 $ .27 $ .31
Gain on preferred stock redemption .30 -- --
Discontinued operations .16 -- (1.37)
-------- -------- --------
Total $ .66 $ .27 $ (1.06)
======== ======== ========
Dividend declared per common share -- -- --
======== ======== ========
Weighted average common shares
outstanding - basic and diluted (in thousands) 9,896 7,383 7,386
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 18 of 41
<PAGE>
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 2,538 $ 3,160 $ 3,727
Reconciliation of net income from continuing
operations to net cash provided (used) by operations:
Depreciation and amortization 719 611 452
Deferred tax provision 172 383 2,521
Changes in operating assets and liabilities, net of
effect from acquired businesses:
Accounts receivable 400 167 (193)
Inventory 357 1,015 297
Federal income taxes payable 70 (6,248) --
Accounts payable (61) (240) (790)
Other current liabilities 662 (1,463) 80
Other operating assets and liabilities (1,347) (1,889) (2,363)
Cash flow from discontinued operations (163) (393) (5,968)
-------- -------- --------
3,347 (4,897) (2,237)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations 1,544 -- 51,924
Investment in net assets of acquired businesses (834) (5,249) --
Capital expenditures (220) (113) (323)
Investment in other assets (85) -- --
-------- -------- --------
405 (5,362) 51,601
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility and
capitalized lease obligations 4,975 19,769 20,279
Repayment of long-term debt and capital lease obligations (8,239) (9,430) (57,299)
Preferred stock payments (110) (12,500) --
-------- -------- --------
(3,374) (2,161) (37,020)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 378 (12,420) 12,344
Cash and cash equivalents beginning of year 55 12,475 131
-------- -------- --------
Cash and cash equivalents end of year $ 433 $ 55 $ 12,475
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 729 $ 380 $ 856
======== ======== ========
Income taxes $ 2,089 $ 8,420 $ 152
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
Page 19 of 41
<PAGE>
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
SERIES B PREFERRED STOCK COMMON STOCK
------------------------------------ -----------------------
ACCUM. PAID IN RETAINED
SHARES AMOUNT DIVIDEND SHARES AMOUNT CAPITAL EARNINGS
----------- -------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996 20,805,060 $ 20,805 $ 2,739 7,388,282 $ 74 $ 19,858 $ (31,403)
----------- -------- --------- ---------- --------- --------- ---------
Net loss (6,390)
Dividends accrued on
preferred stock 1,445 (1,445)
Common stock returned (5,500)
----------- -------- --------- ---------- --------- --------- ---------
DECEMBER 31, 1997 20,805,060 $ 20,805 $ 4,184 7,382,782 $ 74 $ 19,858 $ (39,238)
----------- -------- --------- ---------- --------- --------- ---------
Net income 3,160
Dividends accrued on
preferred stock 1,139 (1,139)
Dividends paid on
preferred stock (2,381)
Preferred stock redemption (10,117,604) $(10,118)
----------- -------- --------- ---------- --------- --------- ---------
DECEMBER 31, 1998 10,687,456 $ 10,687 $ 2,942 7,382,782 $ 74 $ 19,858 $ (37,217)
----------- -------- --------- ---------- --------- --------- ---------
Net income $ 7,093
Preferred stock
Dividends accrued 611 (611)
Preferred stock dividends
paid (3,541)
Preferred stock redeemed (6,132,449) (6,132)
Common stock issued 6,552,076 65 6,487
----------- -------- --------- ---------- --------- --------- ---------
DECEMBER 31, 1999 4,555,007 $ 4,555 $ 12 13,934,858 $ 139 $ 26,345 $ (30,735)
=========== ======== ========= ========== ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
Page 20 of 41
<PAGE>
CARLYLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATION: Carlyle Industries, Inc. (the "Company") and its
Subsidiaries manufacture and distribute a line of buttons, craft and gift
products. The Company was organized under the laws of the State of Delaware in
1947.
CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of the Company and all subsidiaries after elimination of
intercompany items and transactions.
RECLASSIFICATIONS AND DISCONTINUED OPERATIONS: In order to conform to
the 1999 presentation, certain reclassifications were made to the prior years'
financial statements. See Note 4 regarding discontinued operations.
REVENUE RECOGNITION: Revenue is recognized upon shipment of
merchandise.
SALES RETURNS: The Company estimates an allowance for sales returns
based on historical sales and sales returns and records a related allowance, if
significant.
ALLOWANCE FOR DOUBTFUL ACCOUNTS: The Company maintains a reserve for
doubtful accounts which includes 100% of all invoices that management deems
doubtful of collection.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are
computed principally by the straight-line method for each class of depreciable
and amortizable asset based on their estimated useful lives. Buildings and
improvements, machinery and equipment, and furniture, fixtures and leasehold
improvements are generally depreciated over periods of 20-35, 5-25 and 5-10
years, respectively.
INCOME TAXES: Deferred income taxes are determined using the liability
method following the provisions of Statement of Financial Accounting Standards
("SFAS") No. 109 (Accounting for Income Taxes) whereby the future expected
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements are
recognized as deferred tax assets and liabilities.
IMPAIRMENT: Long term assets are reviewed for impairment following the
provisions of SFAS No. 121 (Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of). Goodwill not associated with
particular assets is reviewed for impairment based on an analysis of
undiscounted future cash flows associated with the related operation.
GOODWILL: Goodwill is amortized on a straight line basis over periods
ranging from 15 to 30 years.
ENVIRONMENTAL LIABILITIES: The Company accrues for losses associated
with environmental remediation obligations when such losses are probable and
reasonably estimable. Accruals for estimated losses from environmental
remediation obligations generally are recognized no later than completion of the
remedial feasibility study. Such accruals are adjusted as further information
develops or circumstances change. Costs of future expenditures for environmental
remediation obligations are not discounted to their present value.
Page 21 of 41
<PAGE>
CASH EQUIVALENTS: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS
On December 29, 1999, the Company's wholly owned subsidiary Button
Fashion B.V. ("Button Fashion") acquired the operating assets of Button Fashion
Holland B.V. for approximately $834 thousand in cash including transaction
costs. An additional $162 may be payable over the next four years contingent on
the realizability of certain inventory assets acquired. Button Fashion
manufactures and distributes buttons for sale principally in the European
market.
On December 16, 1998 the Company acquired certain assets and the
business of Streamline Industries, Inc. ("Streamline") for approximately $1.6
million in cash. Streamline packages and distributes a line of carded buttons
and embellishments for sale to retail and specialty chain stores.
On June 30, 1998, the assets and business of Westwater Enterprises LP
were acquired by Westwater Industries, Inc. ("Westwater"), a newly formed
wholly-owned subsidiary of the Company. Westwater is an importer and distributor
of craft and gift products for sale to retail and specialty chain stores. The
Company paid approximately $3.1 million in cash, assumed $.5 million in bank
debt. In addition, contingent payments of up to $2 million may become payable
upon the achievement of specified earnings levels or the event an entity other
than Noel Group, Inc. acquires a more than 50% voting control of the Company
prior to December 31, 2000. The contingent payment period expires on December
31, 2000. Based on current earning levels the Company does not anticipate making
the contingent payment.
All acquisitions have been recorded using the purchase method of
accounting. The accounts of Button Fashion have been consolidated with the
accounts of the Company based on preliminary allocations of their respective
purchase prices. These allocations are expected to be finalized after various
studies and other work have been completed. The Company's historical results of
operations include Westwater and Streamline for all of 1999 and from their
respective acquisition dates for 1998. Button Fashion's balance sheet accounts
are consolidated with the Company's as of December 31, 1999. Button Fashion did
not contribute to operating results in 1999.
3. PRO FORMA INFORMATION
The following pro forma condensed consolidated financial information
was prepared assuming Westwater was acquired on January 1, 1998 and that the
transaction was accounted for as a purchase. Pro forma information is presented
for comparative purposes only and does not purport to be indicative of the
results which would have been achieved had the acquisition occurred as of
January 1, 1998, nor does it purport to be indicative of results that may be
achieved in the future. Sales and income during the period December 16, 1998 to
December 31, 1998 attributable to the Streamline acquisition and during the
Page 22 of 41
<PAGE>
period December 29, 1999 to December 31, 1999 attributable to the Button Fashion
acquisition were not significant and, therefore, pro forma amounts presented in
this footnote do not include the pro forma effects of such acquisition.
<TABLE>
<CAPTION>
UNAUDITED
------------
(Dollars in thousands except per share data)
YEAR ENDED DECEMBER 31, 1998
----------------------- ------------
<S> <C>
Net Sales $ 27,924
============
Income from continuing operations before income taxes $ 4,933
============
Income from continuing operations $ 3,132
============
Dividends on preferred stock $ 1,139
============
Net income (loss) applicable to common stock $ 1,993
============
Earnings per share $ .27
============
</TABLE>
4. DISCONTINUED OPERATIONS:
On March 26, 1997, the Company sold the assets and specified
liabilities of the Company's Thread division to an affiliate of Hicking
Pentecost PLC ("HP"). The aggregate cash consideration was $54.9 million, of
which $3.0 million was placed in escrow subject to certain post-closing
adjustments, plus the assumption of approximately $6.8 million of long term
liabilities. On October 22, 1999, the Company reached final agreement with
Hicking Pentecost PLC regarding all outstanding issues related to the sale of
the Thread division in 1997. As a result, $2.4 million of escrow proceeds were
received from the escrow agent. This receipt has been reported as income from
discontinued operations totaling $1.5 after tax.
In connection with this sale, the Company repaid all bank debt which
was outstanding on March 26, 1997 using proceeds received in the transaction. No
penalties were incurred by the Company in connection with this prepayment. In
addition, the Company paid approximately $7.3 million of income taxes related to
the tax gain resulting from this transaction in March 1998. Nondeductible
goodwill associated with the Thread division amounting to approximately $18.0
million was charged to discontinued operations in connection with the sale.
Operating results of the Thread division for 1997 through the date of
disposition and for all prior periods have been presented as discontinued
operations. The Thread division had revenues of $9.8 million through the date of
disposition in 1997 and $66.8 million during the year ended December 31, 1996.
Page 23 of 41
<PAGE>
5. INVENTORIES:
The components of inventories as of December 31, net of reserves are as
follows (dollars in thousands):
1999 1998
----------- ----------
Raw materials $ 2,503 $ 1,790
Work in progress 10 10
Finished goods 1,975 2,792
----------- ----------
$ 4,488 $ 4,592
=========== ==========
At December 31, 1999 and December 31, 1998 inventories were valued on
both the last-in first-out ("LIFO") basis and the first-in first-out ("FIFO")
basis. If the first-in, first-out ("FIFO") method (which approximates
replacement costs) of inventory accounting had been used exclusively by the
Company, inventories would not have been materially affected.
Inventories are stated at lower of cost or market. Cost elements included
in inventory are material, labor and overhead, primarily using standard cost,
which approximates actual cost.
6. OTHER CURRENT LIABILITIES AND OTHER LIABILITIES:
Other liabilities as of December 31 consist of the following (dollars
in thousands):
<TABLE>
<CAPTION>
CURRENT 1999 1998
------- --------- ---------
<S> <C> <C>
Salaries, wages, bonuses and other compensation...... $ 618 $ 513
Accrued acquisition costs............................ 226 --
Other................................................ 930 762
--------- ---------
$ 1,774 $ 1,275
========= =========
LONG TERM 1999 1998
--------- --------- ---------
Pension liabilities.................................. $ 1,467 $ 1,894
Environmental accruals............................... 1,669 1,656
Other post-retirement benefits....................... 3,111 3,166
Accrued acquisition costs............................ 1,068 1,128
Other................................................ 191 190
--------- ---------
$ 7,506 $ 8,034
========= =========
</TABLE>
7. LONG TERM DEBT:
On June 23, 1998, the Company entered into a revolving credit agreement
(the "Credit Agreement") with Fleet Bank, N.A. ("Fleet") under which $11 million
was available as of December 31, 1999. The Credit Agreement has a term of five
years and amounts available under the agreement are reduced in $1 million
increments at the end of each six month period, with the next such reduction
occurring June 30, 2000. Advances bear interest equal to, at the Company's
option, (1) the rate at which deposits in U.S. dollars are offered by the
principal office of Fleet in London, England to prime banks in the London
interbank market (LIBOR) plus 1.5% or (2) Fleet's prime rate. A performance
price grid provides that interest rates will step down upon the Company's
achievement of specified ratios of funded debt to earnings before interest,
income taxes, depreciation and amortization.
Page 24 of 41
<PAGE>
The weighted average interest rate on outstanding debt under the
Company's credit facility was 6.78% during 1999. The weighted average
outstanding debt under the facility during 1999 was $9.0 million.
The Credit Agreement is guaranteed by all direct and indirect
subsidiaries of the Company and is secured by a first priority lien or security
interest in substantially all of the assets of the Company. The Credit Agreement
contains representations and warranties, covenants and events of default
customary for credit agreements of this nature. Such customary covenants include
restrictions on the ability to incur more debt, acquire other companies, make
preferred stock payments and use of proceeds from the sale of assets. In
addition to the semi-annual reduction in availability, additional payments may
be required based on the Company's proceeds from asset sales and "excess cash
flow" as defined in the Credit Agreement.
Debt obligations as of December 31 consist of (dollars in thousands):
1999 1998
--------- ---------
Revolving credit facility.................. $ 7,200 $ 10,400
Capitalized lease obligations.............. 21 77
--------- ---------
7,221 10,477
Less: Current maturities.................. 21 56
--------- ---------
$ 7,200 $ 10,421
========= =========
8. LEASE PAYMENTS:
The following is a schedule of future minimum lease payments under
capital and non-cancelable operating leases with initial or remaining terms of
one year or more at December 31, 1999 (dollars in thousands):
2000 $ 242
2001 190
2002 14
---------
$ 446
Amount representing interest 1
---------
Present value of minimum lease
payments (all current) $ 445
=========
Rental expense for premises and machinery and equipment leased by the
Company under operating leases was as follows (dollars in thousands):
YEARS ENDED DECEMBER 31,
1999 1998 1997
-------- --------- -------
Premises $ 259 $ 132 $ 101
Machinery $ 20 $ 5 $ 8
Page 25 of 41
<PAGE>
9. FINANCIAL INSTRUMENTS:
The Company's financial instruments are comprised of cash, cash
equivalents, accounts receivable, long term debt and Series B Preferred Stock at
December 31, 1999. The carrying amounts of cash, cash equivalents, accounts
receivable and long term debt approximate fair values due to the short-term
maturity of cash, cash equivalents and accounts receivable and in the case of
long term debt due to the Company's forecasted ability to repay such debt and
accrued interest. It was not practicable to obtain an estimate of the fair value
of the Company's Series B Preferred Stock.
10. CUSTOMER CONCENTRATION:
During the years ended December 31, 1999, 1998 and 1997, the Company
conducted business with four customers whose aggregate sales volume represented
approximately 78%, 77% and 78% of the Company's net revenues, respectively.
These customers also represented approximately 72% of the total outstanding
accounts receivable as of December 31, 1999 and 1998. A reduction in sales to
any of these customers could adversely impact the financial condition and
results of operations of the Company.
11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS:
The Company sponsors a defined benefit plan which requires no
contribution from the employees. The plan was frozen as of December 31, 1994,
and no new employees have been eligible to join this plan after that date. Prior
to December 31, 1994, the Plan covered substantially all employees. The
employees covered under this plan do not receive any additional accruals for
service rendered after December 31, 1994. Plan assets consist principally of
common stocks and U.S. Government and corporate obligations.
The benefits under this plan are determined based on formulas which
reflect the employees' years of service and compensation during their employment
period. The projected unit credit method is used to determine pension cost.
Funding requirements for the plan are based on the unit credit method. The
Company's policy is to fund pension cost as required by ERISA.
The Company provides certain health and life insurance benefits for
eligible retirees and their dependents. The Company accounts for post retirement
benefits in accordance with SFAS No. 106 (Employers' Accounting for
Post-retirement Benefits Other Than Pensions), whereby the cost of
post-retirement benefits are accrued during employees' working careers. The plan
is not funded. The Company's policy is to pay the cost of benefits as incurred.
Certain benefits are available to full-time employees who were over age 30, as
of January 1, 1992, provided such employees work for the Company for 25 years
and reach certain ages, but not less than age 55. Employees hired after January
1, 1993 are not eligible to receive benefits under this Plan. (dollars in
thousands):
Page 26 of 41
<PAGE>
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
YEARS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 21,650 $ 20,704 $ 3,168 $ 3,356
Service cost -- -- 1 1
Interest costs 1,438 1,457 181 218
Actuarial (gain) loss (1,462) 1,138 (428) (240)
Benefits paid (2,276) (1,649) (192) (167)
-------- --------- --------- ---------
Benefit obligation at end of year $ 19,350 $ 21,650 $ 2,730 $ 3,168
======== ========= ========= =========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 22,572 $ 22,542 $ -- $ --
Actual return on plan assets 774 1,679 -- --
Employer contribution -- -- -- --
Benefits paid (2,276) (1,649) -- --
-------- --------- --------- ---------
Fair value of plan assets at end of year $ 21,070 $ 22,572 $ -- $ --
======== ========= ========= =========
Funded status $ 1,721 $ 922 $ (2,730) $ (3,168)
Unrecognized net actuarial loss (gain) (1,615) (1,283) (221) 177
Unrecognized prior service cost -- -- (160) (175)
-------- --------- --------- ---------
Accrued benefit cost $ 106 $ (361) $ (3,111) $ (3,166)
======== ========= ========= =========
Weighted average assumptions as of December 31:
Discount rate 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets 8.75% 9.50% N/A N/A
Rate of compensation increase N/A N/A N/A N/A
COMPONENTS OF NET PERIODIC BENEFIT COST
Service -- -- 1 1
Interest cost 1,438 1,457 181 218
Expected return on plan assets (1,905) (2,073) -- --
Amortization of prior service cost -- -- (15) (15)
Recognized net actuarial loss (gain) -- (49) (29) 11
-------- --------- --------- ---------
Net periodic benefit cost $ (467) $ (665) $ 138 $ 215
======== ========= ========= ========
</TABLE>
A one-percentage-point change in assumed health care cost trend rates
would not change the actuarial present value of the accumulated post-retirement
benefit obligations due to annual limitations of Company contributions per
employee.
12. PENSION BENEFIT GUARANTY CORPORATION:
In January 1997, the Pension Benefit Guaranty Corporation ("PBGC")
notified the Company that it was considering whether the sale of the Thread
division to HP would create an obligation under ERISA to immediately fund, in
whole or in part, the Company's unfunded liability to its defined benefit plan.
In February 1997, at the request of the PBGC, the Company agreed to provide the
PBGC with at least thirty (30) days advance notice of any proposed dividend,
stock redemption, stockholder buyback or other distribution to shareholders of
any class of equity which is projected to occur at any time prior to March 31,
2002. In consideration of such agreement, the PBGC agreed not to take action
solely with respect to the proposed sale transaction. In December 1997, the
Company notified the PBGC that it intends to redeem $10 million of Preferred
Page 27 of 41
<PAGE>
Stock as soon after year end as was practicable, plus additional amounts
quarterly thereafter, but only to the extent of legally available funds as
determined by the Board of Directors and if appropriate bank financing had been
satisfactorily obtained. Following such notice, the PBGC indicated that it would
not take any action with respect to such payments.
If the PBGC had taken the position that the Company should fund, in
whole or in part, the unfunded liability to the defined benefit plan, after
receiving notice of a proposed dividend, stock redemption, stockholder buyback
or other distribution to shareholders, and if such position were upheld, the
ability of the Company to take any such proposed action could be adversely
affected. The Company has a prepaid pension asset totaling $106 thousand as
recorded in accordance with financial accounting standards as of December 31,
1999. Were the plan to be terminated or were the PBGC to require that the plan
be funded according to different standards, the Company could have a resulting
obligation to transfer cash to the plan. Based on an actuarial estimate, the
obligation to transfer cash in the event of a termination would be $1.8 million.
Any actual amounts transferred in the event of a plan termination would depend
on PBGC action and market conditions at the time of transfer and could differ
significantly from this estimate. For information with respect to the Company's
liability to its defined benefit plan, see Note 11.
13. STOCKHOLDERS' EQUITY:
COMMON STOCK
Each share of Common Stock is entitled to one vote per share. As of
December 31, 1999 there were 20,000,000 shares of Common Stock authorized and
13,934,858 shares issued and outstanding.
PREFERRED STOCK
Each share of Series B Preferred Stock is entitled to one vote per
share. As of December 31, 1999 there were 11,187,451 shares of Preferred Stock
authorized and 4,555,007 shares of Series B Preferred Stock issued and
outstanding. The Series B Preferred Stock is entitled to a preference on
liquidation equal to $1 per share plus accrued and unpaid dividends at the rate
of 6% per annum per share. There remain 499,995 shares of authorized but
unissued shares of blank check Preferred Stock.
Twenty percent of the shares of Series B Preferred were scheduled to be
redeemed by the Company, from funds legally available therefore, on March 15th
of each year commencing in 1995 and ending in 1999. Such shares may also be
redeemed at any time at the Company's option. On June 23, 1998 the Company paid
$12.5 million to holders of its Series B Preferred stock of record as of June
22, 1998. $10.1 million of this amount represented the original redemption
amount and $2.4 million reflected the increase in the redemption amount
resulting from accumulated and unpaid dividends.
On July 30, 1999 the Company announced that its Board had adopted a
voluntary Plan of Recapitalization (the "Plan") to provide for the issuance of
shares of common stock in exchange for accrued and unpaid preferred stock
dividends and the exchange of additional shares of common stock for preferred
stock. Pursuant to the Plan the Board authorized the issuance of 2,757,363
shares of common stock in exchange for $3.4 million accrued dividends through
August 13, 1999, on its Series B preferred stock. The dividend exchange offer
valued the common stock at $1.25 per share. The offer was made to holders of
record as of July 16, 1999. At that date there were twelve holders of preferred
stock holding a total of 10,687,456 shares.
Pursuant to the Plan, the Company's Board also approved an offer to the
preferred stockholders to exchange their shares of preferred stock for shares of
the Company's common stock at the rate .620911 of a share of common stock for
each share of preferred stock. In connection with this exchange offer 6,132,449
shares of preferred stock were exchanged for 3,807,704 shares of common stock.
Page 28 of 41
<PAGE>
On August 13, 1999, the Company paid $3.4 million of accrued preferred
dividends and made a Preferred Stock redemption payment of $6.1 million all by
issuance of common stock. As of December 31, 1999, the Preferred Stock payment
arrearages aggregated $4.6 million.
The Company intends to fulfill its remaining obligation to the holders
of the Preferred Stock as required by the Company's charter to the extent that
the Company has cash resources in excess of those required to operate its
business. As provided for under the Company's credit facility, payments on
preferred stock are permitted up to the net amount received in connection with
the Thread escrow account distribution. As a result, the Company expects to stay
current with respect to preferred stock dividends. However, the Company's
redemption payments on account of the Preferred Stock in the future will depend
on the Company's future cash flow, the timing of the settlement of the
liabilities recorded in the consolidated financial statements of the Company,
the ability of the Company to obtain additional financing and compliance with
the Company's Credit Facility which presently permits only specified payment
amounts including 25% of "excess cash flow", as defined in the agreement. In
addition, the Company's decision to make any such payments will depend on the
successful resolution of any issues which may arise with the PBGC relating to
the Company's unfunded liability, if any, to its defined benefit plan.
Dividends on the Series B Preferred Stock accrue at an annual rate of
6% and are payable quarterly on March 15, June 15, September 15, and December
15. Additional dividends accrue on all scheduled but unpaid dividends at a rate
of 6% per annum.
The amount of the dividends in arrears at December 31, 1999 was zero
and at December 31, 1998 was approximately $2.9 million or $.40 per common
share. In addition, the availability of resources to make dividend payments to
the holders of Preferred Stock in the future will depend on the Company's future
cash flow and the timing of the settlement of the liabilities recorded in the
financial statements of the Company.
14. INCOME TAXES:
The income (loss) before income taxes for the periods ended December
31, 1999, 1998 and 1997 are substantially all domestic in origin.
The components of the income tax provision or benefit are (dollars in
thousands):
CONTINUING OPERATIONS
YEARS ENDED DECEMBER 31,
1999 1998 1997
--------------------------------------
Current provision (benefit) $ 1,305 $ 1,484 $ (400)
Deferred provision 172 383 2,521
--------- --------- --------
$ 1,477 $ 1,867 $ 2,121
========= ========= ========
Page 29 of 41
<PAGE>
DISCONTINUED OPERATIONS
YEARS ENDED DECEMBER 31,
1999 1998 1997
--------------------------------------
Current provision $ 869 $ -- $ 7,503
Deferred provision (benefit) -- -- (2,162)
--------- --------- ---------
$ 869 $ -- $ 5,341
========= ========= ========
The Company's tax provision differed from that which would have been
provided at a 34% rate as follows (dollars in thousands):
CONTINUING OPERATIONS
YEARS ENDED DECEMBER 31,
1999 1998 1997
--------------------------------------
Federal provision at 34% $ 1,321 $ 1,709 $ 1,988
State and local provision, net 123 100 95
Amortization of goodwill 33 32 32
Other, net -- 26 6
--------- --------- --------
$ 1,477 $ 1,867 $ 2,121
========= ========= ========
DISCONTINUED OPERATIONS
YEARS ENDED DECEMBER 31,
1999 1998 1997
-------------------------------------
Federal provision (benefit) at 34% $ 797 $ -- $ (1,624)
State and local provision, net 72 -- 352
Amortization/write-off of goodwill -- -- 6,119
Other, net -- -- 494
--------- --------- --------
$ 869 $ -- $ 5,341
========= ========= ========
At December 31, 1999 and 1998, the components of the net deferred tax
asset are (dollars in thousands):
1999 1998
--------- ----------
Book value of fixed assets over tax basis $ (346) $ (536)
Pension liabilities 571 701
Other post-retirement benefit liability 1,151 1,171
Environmental accruals 808 613
Operating and capital loss carryforwards 402 402
Other, net 29 295
--------- ---------
$ 2,615 $ 2,646
========= =========
Based on the Company's business plan for the future, management is of
the opinion that it is more likely than not that the deferred tax asset at
December 31, 1999 will be realized.
15. INCENTIVE PROGRAM:
As of December 6, 1994, the Company's voting stockholders adopted the
1994 Incentive Program (the "Program"). Grants under the Program may consist of
incentive stock options, non-qualified stock options, stock appreciation rights
in tandem with stock options or freestanding, restricted stock grants, or
restored options. In connection with the Program, 500,000 shares of Common Stock
were available for grants at the start of the Program. In addition, on April 22,
1997, the stockholders voted to amend the Program by increasing the number of
shares available for grant by 500,000.
SFAS No. 123 (Accounting for Stock-Based Compensation) modifies the
accounting and reporting standards for the Company's stock-based compensation
plans. SFAS 123 provides that stock-based awards be measured at their fair value
at the grant date in accordance with a valuation model. This measurement may
either be recorded in the Company's basic financial statements or the pro forma
effect on earnings may be disclosed in its financial statements. The Company has
Page 30 of 41
<PAGE>
elected to provide the pro forma disclosures. The Company's reported and pro
forma net income and earnings per share are as follows:
1999 1998 1997
--------- --------- --------
Net Income (loss):
As Reported $ 6,482 $ 2,021 $ (7,835)
Pro Forma $ 6,327 $ 1,881 $ (7,917)
Basic EPS:
As Reported $ .66 $ .27 $ (1.06)
Pro Forma $ .65 $ .25 $ (1.07)
Diluted EPS:
As Reported $ .66 $ .27 $ (1.06)
Pro Forma $ .65 $ .25 $ (1.07)
The Company has granted options on 986,500 shares through December 31,
1999. Under the Program the option exercise price equals the stock's market
price on date of grant. Program options vest over a three to four-year period
and expire after ten years.
A summary of the status of the Program's outstanding grants and
weighted average exercise prices at December 31, 1999, 1998 and 1997 and changes
during the years then ended is presented in the table and narrative below
(shares in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- --------------------
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 773 $ 4.40 706 $ 4.83 448 $ 5.38
Granted 585 .50 172 1.185 330 2.00
Exercised -- -- -- -- -- --
Forfeited (371) 4.07 (105) 2.02 (72) 5.14
Expired -- -- -- -- -- --
----- ------ ----- ------ ------- -------
End of year 987 $ 1.47 773 $ 4.40 706 $ 4.83
===== ====== ===== ====== ======= =======
Shares exercisable at end
of year 382 541 427
===== ====== ======
Weighted average exercise
price of exercisable options $2.73 $4.15 $ 4.38
===== ===== ======
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free
interest rates of 6.25, 5.7 and 6.5 percent, expected dividend yields of zero
percent; expected lives of 4.0, 5.4 and 4.9 years; expected volatility of 92, 75
and 35 percent.
Page 31 of 41
<PAGE>
16. EARNINGS PER COMMON SHARE:
In 1997, the Company adopted SFAS No. 128 (Earnings per Share). The
adoption of SFAS No. 128 had no effect on previously reported earnings per
share. Options to purchase shares of common stock of the Company had no effect
on earnings per share because the exercise price of such options exceeded the
market price of the Company's common stock in each of the years ended December
31, 1999, 1998 and 1997. Basic earnings per common share have been presented as
earnings from continuing operations, earnings from discontinued operations, and
earnings from extraordinary item. Basic earnings per share from continuing
operations have been calculated as net income from continuing operations after
preferred dividend requirements of $611,000, $1,139,000 and $1,445,000 for 1999,
1998 and 1997 respectively, divided by weighted average common shares
outstanding during the period. Basic earnings per common share from discontinued
operations have been calculated as income (loss) from discontinued operations
plus net loss on disposition of discontinued operations divided by the weighted
average number of common shares outstanding.
17. COMMITMENT AND CONTINGENCIES:
The Company may be involved in various legal actions from time to time
arising in the normal course of business. In the opinion of management, there
are no matters outstanding that would have a material adverse effect on the
consolidated financial position or results of operations of the Company.
18. UNAUDITED QUARTERLY RESULTS OF OPERATIONS: (IN THOUSANDS EXCEPT FOR PER
SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
QUARTER ENDED 1999 1999 1999 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 7,299 $ 8,065 $ 6,912 $ 6,613
Cost of sales 4,152 4,849 3,529 3,357
------------ ------------ ------------ ------------
Gross profit $ 3,147 $ 3,216 $ 3,383 $ 3,256
============ ============ ============ ============
Income applicable to common stock $ 2,024 $ 3,426 $ 565 $ 467
============ ============ ============ ============
BASIC AND DILUTED INCOME PER COMMON SHARE:
Continuing operations $ .04 $ .04 $ .08 $ .06
Gain on preferred stock redemption -- .28 -- --
Discontinued operations .16 -- -- --
------------ ------------ ------------ ------------
$ .20 $ .32 $ .08 $ .06
============ ============ ============ ============
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
QUARTER ENDED 1998 1998 1998 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 6,798 $ 8,111 $ 3,835 $ 5,057
Cost of sales 3,580 4,890 1,882 2,500
------------ ------------ ------------ ------------
Gross profit $ 3,218 $ 3,221 $ 1,953 $ 2,557
============ ============ ============ ============
Income applicable to common stock $ 517 $ 649 $ 238 $ 617
============ ============ ============ ============
BASIC AND DILUTED INCOME PER COMMON SHARE: $ .07 $ .09 $ .03 $ .08
============ ============ ============ ============
</TABLE>
Page 32 of 41
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III.
Pursuant to instruction (G) 3 to Form 10-K, the information required in
Items 10-13 is incorporated by reference from the Company's definitive proxy
statement which is expected to be filed by the Company pursuant to regulation
14A on or around April 20, 2000.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
CARLYLE INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------------------------
Additions
- ------------------------------------------------------------------------------------------------------------------------------
(1) (2)
Balance at Beginning Charged to Costs Charged to Balance at End
Description of Period and Expenses Other Accounts Deductions of Period
----------- --------- ------------ -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Allowance deducted from assets to
which they apply:
Allowance for doubtful accounts $ 538 $ 48 $ 150 $ (549) $ 187
======== ======== ======== ========= ========
YEAR ENDED DECEMBER 31, 1998
Allowance deducted from assets to
which they apply:
Allowance for doubtful accounts $ 108 $ 48 $ 502 $ (120) $ 538
======== ======== ======== ========= ========
YEAR ENDED DECEMBER 31, 1997
Allowance deducted from assets to which they apply:
Allowance for doubtful accounts $ 379 $ -- $ -- $ (271) $ 108
======== ======== ======== ========= ========
</TABLE>
Page 33 of 41
<PAGE>
EXHIBIT LIST
14 (a) Documents filed as part of this Form 10-K:
1. FINANCIAL STATEMENTS. A list of financial statements included
herein is set forth in the Index to Financial Statements, Schedules and Exhibits
appearing in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
2. FINANCIAL STATEMENT SCHEDULES. A list of financial statement
schedules included herein is set forth in the Index to Financial Statements,
Schedules and Exhibits appearing in "ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTAL DATA." All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and therefore
have been omitted.
3. EXHIBITS FILED UNDER ITEM 601 OF REGULATION S-K.
EXHIBIT NO. DESCRIPTION
3.1 Restated Certificate of Incorporation of the Company *
incorporated by reference to Exhibit 3.1 to the Company
Statement on Form 10/A (Amendment No. 4), as filed with the
Commission on March 3, 1994, Commission File No. 0-23082.
3.2 By-laws of the Company incorporated by reference to Exhibit *
3.2 to the Registration Statement on Form 10/A (Amendment No.
3), as filed with the Commission on February 18, 1994,
Commission File No. 0-23082.
4.1 See Exhibit 3.1 *
10.1 Agreement dated as of April 13, 1993 between Belding Heminway *
Company, Inc., Pentapco, Inc. and ConAgra Pet Products
Company, incorporated by reference to Exhibit 2 to the
Current Report on Form 8-K of Belding Heminway Company, Inc.
filed on April 28, 1993, Commission File No. 1-3462.
10.2 Letter Agreement dated as of July 21, 1993 between Gregory H. *
Cheskin and Belding Heminway Company, Inc. incorporated by
reference to Exhibit 10.2 to the Registration Statement on
Form 10, as filed with the Commission on December 15, 1993,
Commission File No. 0-23082.
10.3 Letter Agreement dated as of August 9, 1993 between Winton J. *
Tolles and Belding Heminway Company, Inc. incorporated by
reference to Exhibit 10.3 to the Registration Statement on
Form 10, as filed with the Commission on December 15, 1993,
Commission File No. 0-23082.
10.4 Agreement and Plan of Merger dated as of June 16, 1993 among *
Noel Group, Inc., BH Acquisition Corporation and Belding
Heminway Company, Inc. incorporated by reference to Exhibit A
to the Schedule 14C Information Statement of Belding Heminway
Company filed on October 8, 1993, Commission File No. 1-3462.
Page 34 of 41
<PAGE>
10.5 Credit Agreement among Belding Heminway Company, Inc., *
NationsBank of North Carolina, N.A., Fleet Bank, The Bank of
New York and the Daiwa Bank, Ltd. dated as of October 29,
1993 incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form 10, as filed with the
Commission on December 15, 1993, Commission File No. 0-23082.
10.6 Stock Purchase Agreements dated as of December 17, 1993 *
between Noel Group, Inc., Belding Heminway Company, and the
Purchasers listed on the signature pages therein incorporated
by reference to Exhibit 10.6 to the Registration Statement on
Form 10/A (Amendment No. 3), as filed with the Commission on
February 18, 1994, Commission File No. 0-23082.
10.7 Amendment No. 1 to Credit Agreement dated as of March 23, *
1994 between the Company and NationsBank of North Carolina,
N.A., individually and as agent for Fleet Bank, The Bank of
New York and the Daiwa Bank Limited, incorporated by
reference to exhibit 10.1 to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended March 31, 1994, as
filed with the Commission on May 16, 1994, Commission File
No. 0-23082.
10.8 Stock Acquisition Agreement dated June 10, 1994, by and among *
Belding Heminway Company, Inc., Danfield Threads, Inc., The
Bridge Realty Company, Alexander H. Dankin and Dorothy B.
Dankin incorporated by reference to exhibit 7(b)(1) the
Company's current report on Form 8-K filed with the
Commission on June 15, 1994, Commission File No. 0-23082.
10.9 First Amendment to Stock Acquisition Agreement dated June 30, *
1994 by and among Belding Heminway Company, Inc., Danfield
Threads, Inc., The Bridge Realty Company, Alexander H. Dankin
and Dorothy B. Dankin incorporated by reference to exhibit
7(b)(2) the Company's current report on Form 8-K filed with
the Commission on June 15, 1994, Commission File No. 0-23082.
10.10 Non-Competition Agreement dated June 30, 1994 between Belding *
Heminway Company, Inc. and Alexander H. Dankin. incorporated
by reference to exhibit 7(b)(3) the Company's current report
on Form 8-K filed with the Commission on June 15, 1994,
Commission File No. 0-23082.
10.11 Amendment No. 2 to Credit Agreement dated as of June 30, 1994 *
between the Company and NationsBank of North Carolina , N.A.,
individually and as agent for Fleet Bank, The Bank of New
York and the Daiwa Bank Limited, incorporated by reference to
exhibit 10.2 to the Company's quarterly report on Form 10-Q
for the fiscal quarter ended June 30, 1994, as filed with the
Commission on August 15, 1994, Commission File No. 0-23082.
Page 35 of 41
<PAGE>
10.12 Belding Heminway Company Restated 1994 Voluntary *
Recapitalization Plan dated as of November 14, 1994, as
amended, incorporated by reference to exhibit 7(c)(1) to the
Company's current report on Form 8-K filed with the
Commission on December 15, 1994, Commission File No. 0-23082.
10.13 Belding Heminway Company, Inc. 1994 Incentive Program, *
effective as of December 6, 1994, as amended, incorporated by
reference to exhibit 7(c)(2) to the Company's current report
on Form 8-K filed with the Commission on December 15, 1994,
Commission File No. 0-23082.
10.14 Exchange Agreement dated as of November 14, 1994 between *
Belding Heminway Company and the holders of its Preferred
Stock as amended, incorporated by reference to exhibit
7(c)(3) to the Company's current report on Form 8-K filed
with the Commission on December 15, 1994, Commission File No.
0-23082.
10.15 Amendment to Restated Certificate of Incorporation of Company *
filed on December 13, 1994, as amended, incorporated by
reference to exhibit 7(c)(4) to the Company's current report
on Form 8-K filed with the Commission on December 15, 1994,
Commission File No. 0-23082.
10.16 Sale - Purchase Agreement dated as of November 24, 1993 by *
and between Corticelli Real Estate Corporation and Akwa Inc.
, incorporated by reference to the corresponding exhibit on
Company's annual report on Form 10-K for the fiscal year
ended December 31, 1993, as filed with the Commission on
March 31, 1994, Commission File No. 1-3462.
10.17 Amendment No. 3 to Credit Agreement, dated as of February 1, *
1995, between the Company and NationsBank of North Carolina,
N.A., individually and as agent for Fleet Bank, The Bank of
New York, and the Daiwa Bank, Limited, incorporated by
reference to exhibit 10.1 to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended March 31, 1995, as
filed with the Commission on May 10, 1995, Commission File
No. 0-23082.
10.18 Amendment No. 4 to Credit Agreement dated as of March 29, *
1995, between the Company and NationsBank of North Carolina,
N.A., individually and as agent for Fleet Bank, The Bank of
New York, and the Daiwa Bank, Limited, incorporated by
reference to exhibit 10.2 to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended March 31, 1995, as
filed with the Commission on May 10, 1995, Commission File
No. 0-23082.
10.19 Amendment No. 5 to Credit Agreement dated as of April 17, *
1995, between the Company and NationsBank of North Carolina,
N.A., individually and as agent for Fleet Bank, The Bank of
New York, and the Daiwa Bank, Limited, incorporated by
reference to exhibit 10.3 to the Company's quarterly report
Page 36 of 41
<PAGE>
on Form 10-Q for the fiscal quarter ended March 31, 1995, as
filed with the Commission on May 10, 1995, Commission File
No. 0-23082.
10.20 Amendment No. 6 to Credit Agreement dated as of August 30, *
1995, between the Company and NationsBank of North Carolina,
N.A., individually and as agent for Fleet Bank, The Bank of
New York, and the Daiwa Bank, Limited, incorporated by
reference to exhibit 10.1 to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended September 30, 1995,
as filed with the Commission on November 14, 1995, Commission
File No. 0-23082.
10.21 Amendment No. 7 to Credit Agreement dated as of October 31, *
1995, between the Company and NationsBank of North Carolina,
N.A., individually and as agent for Fleet Bank, The Bank of
New York, and the Daiwa Bank, Limited, incorporated by
reference to exhibit 10.2 to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended September 30, 1995,
as filed with the Commission on November 14, 1995, Commission
File No. 0-23082.
10.22 Letter Agreement dated October 31, 1995 between the Company *
and NationsBank of North Carolina, N.A., incorporated by
reference to exhibit 10.3 to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended September 30, 1995,
as filed with the Commission on November 14, 1995, Commission
File No. 0-23082.
10.23 Amendment No. 8 to Credit Agreement dated as of March 15,
1996, between the Company and NationsBank of North Carolina,
N.A., individually and as agent for Fleet Bank, The Bank of
New York, and the Daiwa Bank, Limited, incorporated by
reference to the corresponding exhibit to the Company's
annual report on Form 10-K for the fiscal year ended December
31, 1996, as filed with the Commission on March 14, 1997,
Commission File No. 1-3462.
10.24 Consulting Agreement, dated March 22, 1996 between the *
Company and Karen Brenner incorporated by reference to
Exhibit 10.1 to the Company's quarterly report on Form 10-Q
for the fiscal quarter ended March 31, 1996, as filed with
the Commission on March 15, 1996, Commission File No.
0-23082.
10.25 Stock Purchase Agreement, dated July 12, 1996, between the *
Company and Lewis Textiles Corporation incorporated by
reference to Exhibit (a) (1) to the Company's quarterly
report on Form 10-Q for the fiscal quarter ended June 30,
1996, as filed with the Commission on August 12, 1996,
Commission File No. 0-23082.
10.26 Amendment, dated as of November 12, 1996 to Credit Agreement, *
dated as of October 29, 1996 (as previously amended) between
the Company and NationsBank of North Carolina, N.A.,
individually and as agent for Fleet Bank, The Bank of New
York, and The Daiwa Bank, Limited, incorporated by reference
to Exhibit 10.23A to the Company's Form 10-Q/A for the
quarterly period ended September 30, 1996, as filed with the
Commission on November 25, 1996, Commission File No. 0-23082.
Page 37 of 41
<PAGE>
10.27 Loan and Security Agreement, among the Company, *
Blumenthal/Lansing Company, The Belding Thread Group LLC,
Culver International Inc., Danfield Threads, Inc., American
Collars, Inc., The Bridge Realty Company, Sanwa Business
Credit Corporation and Heller Financial, Inc., dated as of
December 30, 1996, incorporated by reference to the
corresponding exhibit and Company's annual report on Form
10-K for the fiscal year ended December 31, 1996, as filed
with the Commission on March 14, 1997, Commission File No.
1-3462.
10.28 Separation Agreement, between the Company and Gregory H. *
Cheskin dated as of October 7, 1996, incorporated by
reference to the corresponding exhibit and Company's annual
report on Form 10-K for the fiscal year ended December 31,
1996, as filed with the Commission on March 14, 1997,
Commission File No. 1-3462.
10.29 Separation Agreement, between the Company and Winton J. *
Tolles dated as of June 20, 1996, incorporated by reference
to the corresponding exhibit and Company's annual report on
Form 10-K for the fiscal year ended December 31, 1996, as
filed with the Commission on March 14, 1997, Commission File
No. 1-3462.
10.30 Separation Agreement, between the Company and Gary P. *
Silverman, dated as of January 31, 1997, incorporated by
reference to the corresponding exhibit and Company's annual
report on Form 10-K for the fiscal year ended December 31,
1996, as filed with the Commission on March 14, 1997,
Commission File No. 1-3462.
10.31 Selected provisions of the Registrant's Definitive Proxy *
Statement filed with the Commission on March 3, 1997,
incorporated by reference to the corresponding exhibit and
Company's annual report on Form 10-K for the fiscal year
ended December 31, 1996, as filed with the Commission on
March 14, 1997, Commission File No. 1-3462.
10.32 Letter Agreement dated as of February 25, 1998 between Karen +
Brenner and Carlyle Industries, Inc.
10.33 Letter Agreement dated as of March 24, 1998 between Edward F. +
Cooke and Carlyle Industries, Inc.
16 Letter from Ernst & Young with respect to change in *
accountants incorporated by reference to Exhibit 16 to the
Registration Statement
21 Subsidiaries of Carlyle Industries, Inc.
10.34 Letter Agreement dated May 29, 1998 between Carlyle +
Industries, Inc. and Karen Brenner.
10.35 Employment Agreement dated as of November 25, 1998 between +
Carlyle Industries, Inc. and Ralph Langer.
Page 38 of 41
<PAGE>
10.36 Consulting Agreement by and between Blumenthal Lansing +
Company and David J. Schoenfarber dated December 16, 1998.
10.37 Employment Agreement dated February 22, 1999 and made +
effective as of January 1, 1999 among Carlyle Industries,
Inc. and Robert A. Levinson.
10.38 Amendment No 1 to Fleet Credit Agreement dated December 16, *
1998.
10.39 Amendment No. 2 to Fleet Credit Agreement dated December 29, 1999.
* INCORPORATED BY REFERENCE
+ MANAGEMENT CONTRACT
14 (b). NONE
14 (c). See item 14 (a)(3), above.
14 (d). See item 14 (a)(2), above.
Page 39 of 41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CARLYLE INDUSTRIES, INC.
BY: /s/ ROBERT A. LEVINSON
-------------------------------------------
Robert A. Levinson, Chairman, President
and Chief Executive Officer
Date: March 30, 2000
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registration in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ ROBERT A. LEVINSON Chairman, President March 30, 2000
- ----------------------- and Chief Executive Officer
Robert A. Levinson
/s/ RALPH LANGER Vice Chairman March 30, 2000
- -----------------------
Ralph Langer
/s/ JOSEPH S. DIMARTINO Director March 30, 2000
- -----------------------
Joseph S. DiMartino
/s/ HERBERT FRIEDMAN Director March 30, 2000
- -----------------------
Herbert Friedman
/s/ EDWARD F. COOKE Vice President, March 30, 2000
- ----------------------- Chief Financial Officer
Edward F. Cooke
Page 40 of 41
SECOND AMENDMENT
TO
CREDIT AGREEMENT
SECOND AMENDMENT dated as of December 28, 1999 (the
"AMENDMENT") between CARLYLE INDUSTRIES, INC., a Delaware corporation (the
"BORROWER"), and FLEET BANK, N.A., a national banking association (the "BANK")
to the Credit Agreement (as hereinafter defined). Capitalized terms used but not
defined herein shall have the meanings given to such terms in the Credit
Agreement.
WHEREAS, the Bank and the Borrower are parties to a Credit
Agreement dated as of June 23, 1998, as amended by the First Amendment dated as
of December 16, 1998, pursuant to which the Bank has made loans to, and
established credit facilities for, the Borrower (as the same may be further
amended, modified or supplemented from time to time, the "CREDIT AGREEMENT");
WHEREAS, the Borrower wishes to amend the Credit Agreement (i)
to permit use of loan proceeds to fund the acquisition of certain of the assets
of Button Fashion Holland B.V., a Netherlands corporation ("BUTTON FASHION") by
BLC Netherlands B.V., a Netherlands corporation ("BLC NETHERLANDS") and a wholly
owned Subsidiary of Blumenthal (the "BUTTON FASHION ACQUISITION"), and (ii) to
increase the Letter of Credit Commitment and Letter of Credit Facility from
$500,000 to $1,500,000, in each case, in the manner and on the terms and
conditions set forth below.
WHEREAS, the Borrower requests that the Lenders consent to the
creation of BLC Netherlands, a Subsidiary of Blumenthal and the proposed
purchaser in the Button Fashion Acquisition;
WHEREAS, the Borrower has requested that the Bank consent to
the amendments and provide the consents as herein provided and, subject to the
terms and conditions provided herein, the Bank is willing to agree to such
amendments;
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) On and after the Amendment Effective Date (as
hereinafter defined), the Preliminary Statement in the Credit
Agreement is hereby amended by replacing it in its entirety
with the following:
"The Borrower has requested that the Lender Parties
lend to the Borrower up to $14,000,000, subject to reduction
as provided in the Credit Agreement, in order (1) to finance
<PAGE>
the acquisition of substantially all of the assets of
Westwater Enterprises, L.P., (2) to finance the acquisition by
Blumenthal of certain of the assets of Streamline Industries,
Inc. (the "STREAMLINE ACQUISITION"), (3) to use up to
$10,000,000 toward the redemption of $12,500,000 of Preferred
Stock of the Borrower, (4) to finance the acquisition by BLC
Netherlands of certain of the assets of Button Fashion Holland
B.V., a Netherlands corporation (the "BUTTON FASHION
ACQUISITION"), (5) to pay transaction fees and expenses in
connection with the transactions contemplated hereby and (6)
to provide for the short term working capital requirements of
the Borrower. The Lender Parties have indicated their
willingness to agree to lend such amounts on the terms and
conditions of this Agreement."
(b) On and after the Amendment Effective Date, the
definitions of Acquisition Documents, Letter of Credit
Commitment and Letter of Credit Facility in Section 1.01 of
the Credit Agreement are hereby deleted in their entirety and
the following new definitions inserted in lieu thereof:
"ACQUISITION DOCUMENTS" means all documents executed and
delivered in connection with the Acquisition, including
without limitation the Asset Purchase Agreement, to be
executed on a date not later than July 31, 1998 between the
Borrower or Westwater Inc. and Westwater, all documents
executed and delivered in connection with the Streamline
Acquisition, including, without limitation, the Purchase and
Sale Agreement dated as of December 16, 1998 (the "STREAMLINE
ACQUISITION DOCUMENTS"), and all documents executed and
delivered in connection with the Button Fashion Acquisition,
including, without limitation, the Assets and Liabilities
Purchase Agreement dated as of December __, 1999 (the "BUTTON
FASHION ACQUISITION DOCUMENTS"), each in form and substance
satisfactory to the Agent.
"LETTER OF CREDIT COMMITMENT" means the commitment of the
Issuing Bank in an amount, not to exceed the lesser of (a)
available amounts under the Revolving Credit Facility or (b)
$1,500,000 at any time outstanding.
"LETTER OF CREDIT FACILITY" means, at any time, an amount
equal to the amount of the Issuing Bank's Letter of Credit
Commitment at such time and not to exceed $1,500,000."
(c) On and after the Amendment Effective Date, the
last sentence of Section 2.01(b) of the Credit Agreement is
hereby deleted in its entirety and the following inserted in
lieu thereof:
"The Letter of Credit Advances shall not exceed
$1,500,000 in the aggregate at any one time outstanding.
-2-
<PAGE>
(d) " On and after the Amendment Effective Date,
Section 2.15 of the Credit Agreement is hereby deleted in its
entirety and the following inserted in lieu thereof:
"SECTION 2.15. USE OF PROCEEDS. The proceeds of the Advances
shall be available (and the Borrower agrees that it shall use
such proceeds) solely (i) in an amount not to exceed
$3,000,000, to partially fund the Acquisition, including the
satisfaction of certain Debt of Westwater; (ii) to fund up to
$10,000,000 toward the redemption of $12,500,000 of Preferred
Stock of the Borrower, it being understood that as of the
Closing Date Borrower will redeem shares of Preferred Stock of
the Borrower having an aggregate value of $12,500,000; (iii)
to pay transaction fees and expenses in connection with the
transactions contemplated hereby; (iv) in an amount not to
exceed $2,500,000, to partially fund the Streamline
Acquisition; (v) in an amount not to exceed $800,000 to
partially fund the Button Fashion Acquisition and (vi) to
provide for the short term working capital requirements of the
Borrower, Westwater, Inc. (after the occurrence of the
Acquisition) and Blumenthal. Issuances of Letters of Credit
shall be available (and the Borrower agrees that it shall use
such Letters of Credit) solely for the benefit of foreign
suppliers of Inventory to the Borrower, Westwater Inc. (after
the occurrence of the Acquisition) and Blumenthal."
2. CONSENT OF THE BANK. The Bank consents to the
establishment and creation of BLC Netherlands upon the terms and conditions set
forth in Section 3 hereof and waives the requirements of Section 5.01(m)(A) and,
subject to Section 7 hereof, (B) of the Credit Agreement.
3. CONDITIONS PRECEDENT TO EXECUTION OF AMENDMENT. The
obligation of the Bank to execute and deliver this Amendment and to make any
Loan after the Amendment Effective Date under the Credit Agreement as amended
hereby is subject to the condition that on or before the Amendment Effective
Date the Bank shall have received each of the following documents and
instruments in form and substance satisfactory to the Bank and dated as of the
Amendment Effective Date or other evidence of compliance with the following
conditions satisfactory to the Bank:
(a) the Amendment executed and delivered by an
authorized officer of the Borrower;
(b) a Pledge Agreement, in form and substance
reasonably satisfactory to the Agent, duly executed and
delivered by an authorized officer of Blumenthal (a "PLEDGE
AGREEMENT"), in respect of sixty-five percent (65%) of the
stock of BLC Netherlands held by Blumenthal.
(c) the representations and warranties contained in
each Loan Document are correct on and as of the Amendment
Effective Date, before and after giving effect to such
Borrowing or issuance and to the application of the proceeds
-3-
<PAGE>
therefrom, as though made on and as of such date other than
any such representations or warranties that, by their terms,
refer to a specific date other than the date of such
Borrowing, in which case as of such specific date;
(d) no event shall have occurred and be continuing,
or would result from such Borrowing or issuance or from the
application of the proceeds therefrom, that constitutes a
Default;
(e) the Lenders shall be satisfied that the assets
and earnings of the Borrower immediately following the Button
Fashion Acquisition contemplated hereby will be sufficient to
support the Obligations of the Borrower under the Credit
Agreement, the Notes, the other Loan Documents and the
Acquisition Documents and the timely amortization of all
Indebtedness and other Obligations of the Borrower;
(f) intentionally omitted;
(g) the Agent shall have received on or before the
date of the Borrowing, each of even date therewith (unless
otherwise specified), in form and substance satisfactory to
the Lenders (unless otherwise specified) and in sufficient
copies for each Lender and Agent and Lender's counsel and in
the case of (i) through (v) below to the extent reasonably
necessary to evidence the Borrowing to fund the Button Fashion
Acquisition:
(i) Amended schedules to the Credit Agreement
and Collateral Documents;
(ii) Certified copies of the resolutions of the
Board of Directors of the Borrower and Blumenthal
approving the Button Fashion Acquisition, all other
transactions contemplated thereby, and of all
documents evidencing other necessary corporate action
and governmental approvals, if any, with respect to
the Button Fashion Acquisition and the Button Fashion
Acquisition Documents;
(iii) Copies of drafts of the Button Fashion
Acquisition Documents, provided that Borrower and
Blumenthal agree to deliver to the Bank counterparts
duly and validly executed by each party thereto of
the Button Fashion Acquisition Documents (without any
material changes to the terms thereof) prior to
funding the Button Fashion Acquisition and provided,
further that the Button Fashion Acquisition shall
occur by no later than January 7, 2000,
(iv) Such financial, business and other
information regarding the Button Fashion Acquisition
as the Lenders shall have reasonably requested;
-4-
<PAGE>
(v) A certificate, in substantially the form of
Exhibit I to the Credit Agreement, attesting to the
Solvency of the Borrower and its Subsidiaries, taken
as a whole, immediately after giving effect to the
Button Fashion Acquisition from its president or vice
president and chief financial officer;
(h) An opinion of counsel to the Borrower in form and
substance satisfactory to the Agent as to such matters as the
Agent or its counsel may reasonably request; and
(i) An opinion of Netherlands counsel to the
Borrower, Blumenthal and BLC Netherlands in form and substance
satisfactory to the Agent as to such matters as the Agent or
its counsel may reasonably request.
4. FEES. The Borrower agrees to pay on or before the
date hereof, all costs and expenses incurred by the Bank (including, without
limitation, the fees and disbursements of counsel for the Bank) in connection
with the preparation and execution of this Amendment.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Bank to enter into this Amendment, the
Borrower represents and warrants to the Bank as follows:
(i) that no Default exists under the Credit
Agreement on the date hereof, both before and after
giving effect to this Amendment;
(ii) repeats and reaffirms, on and as of the
Amendment Effective Date, each of the
representations, warranties and agreements contained
in Article IV of the Credit Agreement after giving
effect to this Amendment;
(iii) the execution, delivery and performance
by the Borrower of the Amendment and by Blumenthal of
the Pledge Agreement and the taking by each such
entity of all actions contemplated thereby are within
such entity's corporate powers, have been duly
authorized by all necessary corporate action and do
not contravene (x) such entity's charter or by-laws
or similar organizational documents, or (y) any law
or any contractual restriction binding on or
affecting such entity;
(iv) no authorization, approval or other
action by, and no notice to or filing with, any
governmental authority or regulatory body is required
(other than those which have been given or made) for
the due execution, delivery and performance by the
Borrower of this Amendment or the Pledge Agreement or
for the taking by it of any action contemplated
hereby or thereby to be taken by it;
-5-
<PAGE>
(v) the Amendment constitutes the legal, valid
and binding obligation of the Borrower, enforceable
against the Borrower in accordance with its terms;
and
(vi) the Pledge Agreement constitutes the valid
and binding obligation of Blumenthal, enforceable
against Blumenthal in accordance with its terms.
6. AFFIRMATIVE COVENANT
(a) By no later than January 21, 2000, the Company
shall cause Blumenthal to file or cause to be filed an
amendment to the articles of association of BLC Netherlands,
which amendment shall be in form and substance satisfactory to
the Agent and shall be sufficient, in the opinion of
Netherlands counsel to the Company, to give effect to
provisions of the Pledge Agreement that provide for the
assignment of voting rights to the Agent and related matters.
(b) Blumenthal shall within thirty Business Days
after the Amendment Effective Date deliver to the Collateral
Agent in form and substance reasonably satisfactory to the
Agent evidence of the perfection of the Lien granted in the
Pledge Agreement.
7. FURTHER ASSURANCES
Blumenthal and/or BLC Netherlands shall, upon the request of
the Agent, promptly (and in any event within five Business Days after such
request) deliver to the Collateral Agent in form and substance reasonably
satisfactory to the Agent a security agreement duly executed by Blumenthal
and/or BLC Netherlands (an "SECURITY AGREEMENT") and notarial deed or other
evidence of perfection duly executed by Blumenthal and/or BLC Netherlands and
filed or recorded in compliance with Netherlands law (a "PERFECTION
INSTRUMENT"), in respect of the assets of BLC Netherlands and creating and
perfecting a Lien on and in respect of such assets, together with such opinions
of Netherlands and New York counsel with respect to such Security Agreement and
Perfection Instrument as the Agent may reasonably request, provided that such
pledge of assets will not result in adverse U.S. tax consequences to the
Borrower or Blumenthal.
8. MISCELLANEOUS.
(a) This Amendment shall become effective on the date
(the "AMENDMENT EFFECTIVE DATE") when the Borrower and the
Bank shall have signed a copy of this Amendment (whether the
same or different counterpart) and the Borrower shall have
delivered the same to the Bank (including by way of facsimile
device) and complied with the conditions set forth in Section
3 hereof, unless such conditions are waived by the Bank.
-6-
<PAGE>
(b) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. (i) The
(c) Borrower hereby irrevocably and unconditionally:
(i) submits for itself and its property in any
legal action or proceeding relating to this
Amendment, or for recognition and enforcement of any
judgment in respect thereof, to the nonexclusive
general jurisdiction of the State of New York, the
courts of the United States of America for the
Southern District of New York, and appellate courts
from any thereof;
(ii) consents that any such action or
proceeding may be brought in such courts, and waives
any objection that it may now or hereafter have to
the venue of any such action or proceeding in any
such court or that such action or proceeding was
brought in an inconvenient court and agrees not to
plead or claim the same;
(iii) agrees that service of process in any
such action or proceeding may be effected by mailing
a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage
prepaid, to the Borrower at its address set forth in
Section 8.02 of the Credit Agreement or at such other
address of which the Bank has been notified pursuant
thereto;
(iv) agrees that nothing herein shall affect
the right to effect service of process in any other
manner permitted by law or shall limit the right to
sue in any other jurisdiction; and
(v) waives trial by jury in any legal action or
proceeding referred to in paragraphs (i) through (iv)
of this Section 8(c).
(d) This Amendment may be executed in several
counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
(e) This Amendment is limited as specified and
shall not constitute a modification, acceptance or waiver of
any other provision of the Credit Agreement or any other Loan
Document. Except as otherwise provided herein, all terms and
conditions of the Credit Agreement and every other Loan
Document, respectively, and all obligations of the Borrower
and rights of the Bank thereunder shall remain in full force
and effect.
-7-
<PAGE>
(f) This Amendment amends the terms of the Credit
Agreement and does and shall be deemed to form a part of, and
shall be construed in connection with and as part of, the
Credit Agreement for any and all purposes. Any reference to
the Credit Agreement, following the execution and delivery of
this Amendment, shall be deemed a reference to such Credit
Agreement as hereby amended.
-8-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this
Amendment as of the date first above written.
CARLYLE INDUSTRIES, INC.
BY: \s\ EDWARD F. COOKE
------------------------------------
Name: Edward F. Cooke
Title: Vice President
FLEET BANK, N.A., as Agent, Issuing Bank
and Lender
BY: \s\ BETH GOODMAN
------------------------------------
Name: Beth Goodman
Title: Vice President
-9-
SUBSIDIARIES OF CARLYLE INDUSTRIES, INC.
SUBSIDIARY PLACE OF INCORPORATION
Blumenthal Lansing Company Delaware
Carlyle Manufacturing Company, Inc. Connecticut
Westwater Industries, Inc. Delaware
Button Fashion B.V. Netherlands
Page 41 of 41
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000011027
<NAME> Carlyle Industries, Inc.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 433
<SECURITIES> 0
<RECEIVABLES> 4,301
<ALLOWANCES> 0
<INVENTORY> 4,488
<CURRENT-ASSETS> 12,054
<PP&E> 3,714
<DEPRECIATION> 1,116
<TOTAL-ASSETS> 18,512
<CURRENT-LIABILITIES> 3,490
<BONDS> 0
0
4,567
<COMMON> (4,251)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,512
<SALES> 28,889
<TOTAL-REVENUES> 28,889
<CGS> 15,887
<TOTAL-COSTS> 15,887
<OTHER-EXPENSES> 8,234
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 753
<INCOME-PRETAX> 4,015
<INCOME-TAX> (1,477)
<INCOME-CONTINUING> 2,538
<DISCONTINUED> 1,544
<EXTRAORDINARY> 3,011
<CHANGES> 0
<NET-INCOME> 6,482
<EPS-BASIC> 0.66
<EPS-DILUTED> 0.66
</TABLE>
